By Madison Hofert, undergraduate researcher
In an interview with Alexis Alston, formerly with Advantage Capital, we learned how ‘old boys’ networks and investments in the start-up hot spots of Silicon Valley, Cambridge, and New York are becoming obsolete.
Advantage Capital is spearheading the niche space of VC funding that addresses underserved geographic locations. Alston explains that the areas of focus for Advantage’s more-than-a-billion-dollars under management are the midwest and southeast, including Utah, Missouri, the Carolinas and many more states. The structure of Advantage which allows for this geographic diversity is 30 smaller funds specific to each region: the investment theses that are focused on “Missouri might be different than the ones that are focused on Maine or Florida.” These are just a small sampling of the target locations that Advantage Capital is looking to write a check of between $1-15 million for in funding.
Their uniquely geographic focus is not the only innovation of Advantage Capital; Advantage is also a Double Bottom Line fund. The investment metrics that Advantage seeks are both financial and social returns. Alston explains, “We measure our financial returns like our peers do, but we also measure our social impact returns through a few different lenses.” She continues, “we look at job growth, if we’ve seen a drop in people on food stamps, if we can see an unemployment drop… [or] if we have any effect on local school districts.” Advantage also analyzes the racial and gender makeup of their investments, another metric of social impact and thus social returns.
We asked if diversity and inclusion (D&I) was part of Advantage’s selection criteria, and the short answer was no, with a major caveat: “historically, it has not been the focal point of the way we invest. However, we have just happened to invest, in my opinion, pretty well in women owned [and] minority owned companies.” For Alston, “pretty well” really means that in 2017, 48 out of Advantage’s 172 portfolio companies (over 25%) were 100% minority owned. This number goes way up when the criteria is expanded to partial minority ownership. Further, 22 out of these 172 companies were completely women-owned. “And it just happened,” Alston says, regarding how Advantage did not have a specific focus on D&I. And while D&I was not always at the forefront of Advantage’s selection criteria, Alston explains that “recently, we became more intentional about increasing diversity in our portfolios.” This new envelope-pushing outlook will include people who don’t identify as male, people of color, people with disabilities, and people who were formerly incarcerated.
Advantage does not have specific programming to combat issues of gender bias, however in the data shown above, Advantage’s larger goal of “improving the general quality of life” naturally lands them in a pretty good place regarding D&I. When Alston began giving examples of the kind of investment opportunities that Advantage seeks, it became clear that “improving the general quality of life” for underserved locations is intrinsically linked with D&I. Thinking hypothetically, Alston explains, “in some communities, it means investing in a company that has a workforce that’s one hundred percent minorities. Or it may be, you know, investing in a school system that’s been historically low-income and has a high percentage of female minority underserved students.” One concrete example Alston provided was from around 2017 again: “We restarted a lumber mill… but by restarting the lumber mill we saved two school districts that almost entirely served people of color in [rural] in Arkansas.”
Throughout the entire interview, Alston emphasized that Advantage’s work “really varies from place to place.” While the variety of locations, community needs, and portfolio companies that Advantage Capital supports point to the breadth of their work, it is clear that one thing holds constant: a major positive influence on D&I in the VC space. By targeting geographically underserved locations, Advantage Capital intrinsically promotes D&I in every aspect of their funding. As Alston said, “it just happened”—when a VC firm is double bottom line and truly invested in making the world a better place, it appears that D&I naturally follows if one is willing to look for it. One way VC firms can begin to get these results are throwing away their ‘old boys’ networks (Advantage “isn’t all about network, network, network”), and opening up a portal for companies to submit information which is “read every single day.” No “warm intros” or exclusivity is required to become one of Advantage’s portfolio companies. What matters is the double bottom line.
Of course, a common misconception is that firms believe that a focus on impact sacrifices possible returns. Well, Alston and Advantage Capital are here to tell you that “we don’t suffer because we care about impact.”